[Analytical Perspectives]
[Dimensions of the Budget]
[20. Comparison of Actual to Estimated Totals]
[From the U.S. Government Printing Office, www.gpo.gov]
In successive budgets, the Administration publishes several estimates
of the surplus or deficit for a particular fiscal year. Initially, the
year appears as an outyear projection at the end of the budget horizon.
In each subsequent budget, the year advances in the estimating horizon
until it becomes the ``budget year.'' One year later, the year becomes
the ``current year'' then in progress, and the following year, it
becomes the just-completed ``actual year.''
The budget is legally required to compare budget year estimates of
receipts and outlays with the subsequent actual receipts and outlays for
that year. \1\ Part I of this chapter meets that requirement by
comparing the actual results for 2004 with the current services
estimates shown in the 2004 Budget published in February 2003.
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\1\ These requirements, for receipts and ``uncontrollable outlays,''
are in 31 USC 1105(a)(18) through (20).
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Part II of the chapter presents a broader comparison of estimates and
actual outcomes. This part first discusses the historical record of
budget year estimates versus actual results over the last two decades.
Second, it broadens the focus to estimates made for each year of the
budget horizon, extending four years beyond the budget year. This
broader focus shows that the growth in differences between estimates and
the eventual actual results grows as the estimates extend further into
the future.
PART I: COMPARISON OF ACTUAL TO ESTIMATED TOTALS FOR 2004
This part of the chapter compares the actual receipts, outlays, and
deficit for 2004 with the current services estimates \2\ shown in the
2004 Budget published in February 2003. This part also presents a more
detailed comparison for mandatory and related programs, and reconciles
the actual receipts, outlays, and deficit totals shown here with the
figures for 2004 previously published by the Department of the Treasury.
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\2\ The current services concept is discussed in Chapter 25, ``Current
Services Estimates.'' For mandatory programs and receipts the February
2003 current services estimate is based on laws then in place. For
discretionary programs the current services estimate is based on the
current year estimates adjusted for inflation.
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Receipts
Actual receipts for 2004 were $1,880 billion, $151 billion less than
the $2,031 billion current services estimate in the 2004 Budget
(February 2003). As shown in Table 20-1, this shortfall was the net
effect of legislative and administrative changes; economic conditions
that differed from what had been expected; and technical factors that
resulted in different collection patterns and effective tax rates than
had been assumed. In the interest of cautious and prudent forecasting,
the February 2003 estimate included a downward adjustment beyond what
the economic and receipts models were forecasting. This adjustment,
which was not distributed by source of receipt, reduced the estimate of
2004 receipts by $15 billion.
Policy differences. Enactment of the Jobs and Growth Tax Relief
Reconciliation Act in May 2003 reduced 2004 receipts by $138 billion.
This reduction was partially offset by enactment of the Pension Funding
Equity Act in April 2004, which increased 2004 receipts by $3 billion.
Table 20-1. COMPARISON OF ACTUAL 2004 RECEIPTS WITH THE INITIAL CURRENT SERVICES ESTIMATES
(in billions of dollars)
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Enacted
February legislation/ Different Technical Net
2003 administrative economic factors change Actual
estimate actions conditions
----------------------------------------------------------------------------------------------------------------
Individual income taxes................. 954 -109 -29 -7 -145 809
Corporation income taxes................ 174 -26 14 27 16 189
Social insurance and retirement receipts 765 * -23 -8 -31 733
Excise taxes............................ 71 .............. -* -1 -1 70
Estate and gift taxes................... 24 .............. * 1 1 25
Customs duties.......................... 21 -* * * * 21
Miscellaneous receipts.................. 38 1 -6 -1 -6 33
Adjustment for revenue uncertainty...... -15 .............. .......... 15 15 .........
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Total................................. 2,031 -135 -43 27 -151 1,880
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* $500 million or less.
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Economic differences. Differences between the economic assumptions
upon which the current services estimates were based and actual economic
performance accounted for a reduction in 2004 receipts of $43 billion.
Lower-than-anticipated wages and salaries and other sources of personal
income were in large part responsible for the reductions in individual
income taxes and social insurance and retirement receipts of $29 billion
and $23 billion, respectively. Lower-than-expected interest rates, which
affect deposits of earnings by the Federal Reserve, were in large part
responsible for the $6 billion reduction in miscellaneous receipts below
the February 2003 estimate. These reductions were only partially offset
by a $14 billion increase in corporation income taxes, attributable to
higher-than-expected corporate profits.
Technical reestimates. Technical factors increased 2004 receipts a net
$27 billion above the February 2003 current services estimate. This net
increase was primarily attributable to higher-than-anticipated
collections of corporation income taxes of $27 billion, which were
partially offset by lower-than-anticipated collections of other sources
of receipts (net of the adjustment for revenue uncertainty) of $1
billion. Different collection patterns and effective tax rates than
assumed in February 2003 were primarily responsible for the higher-than-
anticipated collections of corporation income taxes. Lower-than
anticipated collections in other sources of receipts were in large part
captured by the adjustment for revenue uncertainty, resulting in a net
reduction in collections from these sources of receipts of $1 billion.
Outlays
Outlays for 2004 were $2,292 billion, $103 billion more than the
$2,189 billion current services estimate in the 2004 Budget (February
2003).
Table 20-2 distributes the $103 billion net increase in outlays among
discretionary and mandatory programs and net interest. \3\ The table
also makes rough estimates according to three reasons for the changes:
policy; economic conditions; and technical estimating differences, a
residual.
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\3\ Discretionary programs are controlled by annual appropriations,
while mandatory programs are generally controlled by authorizing
legislation. Mandatory programs are mostly formula benefit or
entitlement programs with permanent spending authority that depend on
eligibility criteria, benefit levels, and other factors.
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Table 20-2. COMPARISON OF ACTUAL 2004 OUTLAYS WITH THE INITIAL CURRENT SERVICES ESTIMATES
(outlays in billions)
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Current Changes
Services -----------------------------------------
(Feb. Total Actual
2003) Policy Economic Technical changes
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Discretionary:
Defense......................................... 383 63 ........ 8 71 454
Nondefense...................................... 412 42 ........ -12 29 441
Subtotal, discretionary....................... 795 105 ........ -5 100 895
Mandatory:
Social Security................................. 493 ........ * -2 -1 492
Other programs.................................. 728 27 1 -11 17 745
Subtotal, mandatory........................... 1,221 27 1 -13 15 1,237
Net interest...................................... 173 4 -22 5 -13 160
Total outlays................................. 2,189 136 -21 -13 103 2,292
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* $500 million or less.
Policy changes are the result of legislative actions that change
spending levels, primarily through higher or lower appropriations or
changes in authorizing legislation, which may reflect responses to
changed economic conditions. For 2004, policy changes increased outlays
an estimated $136 billion relative to the initial current services
estimates.
Policy changes increased discretionary outlays by $105 billion.
Defense discretionary outlays increased by $63 billion and nondefense
discretionary outlays increased by $42 billion. A significant portion of
both defense and nondefense outlay increases resulted from enactment of
the Emergency Wartime Supplemental Appropriations Acts in 2003 and 2004.
Policy changes increased mandatory outlays by $27 billion above current
law. Medicare outlays increased an estimated $11 billion, largely due to
the Prescription Drug and Medicare Improvement Act of 2003. In addition,
outlays for temporary state fiscal relief increased by another $11
billion--$6 billion for Medicaid and $5 billion for state fiscal
assistance grants--resulting from enactment of the Jobs and Growth Tax
Relief Reconciliation Act of 2003. The remaining $5 billion increase
largely consists of unemployment compensation outlays resulting from
extensions of temporary extended unemployment benefits. Debt service
costs increased by $4 billion due to outlay and revenue policy changes.
Table 20-3. COMPARISON OF THE ACTUAL 2004 DEFICIT WITH THE INITIAL CURRENT SERVICES ESTIMATE
(in billions)
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Current Changes
Services -----------------------------------------
(Feb. Total Actual
2003) Policy Economic Technical changes
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Receipts........................................... 2,031 -135 -43 27 -151 1,880
Outlays............................................ 2,189 136 -21 -13 103 2,292
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Deficit.......................................... 158 271 22 -39 254 412
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Note: Deficit changes are outlays minus receipts. For these changes, a plus indicates
an increase in the deficit.
Economic conditions that differed from those forecast in February 2003
resulted in a net decrease in outlays of $21 billion. This decrease
consists almost entirely of a $22 billion decrease in net interest due
to lower-than-expected interest rates.
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Technical estimating differences and other changes resulted in a net
decrease in outlays of $13 billion. Technical changes result from
changes in such factors as the number of beneficiaries for entitlement
programs, crop conditions, or other factors not associated with policy
changes or economic conditions. Outlays for discretionary programs
decreased an estimated $5 billion, due to slower-than-expected outlays
for nondefense programs. Outlays for mandatory programs decreased an
estimated $13 billion. This largely reflects lower-than-anticipated
outlays for Medicaid, farm subsidy programs, and unemployment
compensation, partially offset by higher-than-anticipated outlays for
mortgage credit programs and Medicare. Net interest outlays increased by
$5 billion largely due to technical factors compared to the February
2003 estimates.
Table 20-4. COMPARISON OF ACTUAL AND ESTIMATED OUTLAYS FOR MANDATORY AND RELATED PROGRAMS UNDER CURRENT LAW
(in billions of dollars)
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2004
-----------------------------------------
Feb. 2003
estimate Actual Change
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Mandatory outlays:
Human resources programs:
Education, training, employment, and social services.............. 10 13 3
Health:
Medicaid........................................................ 177 176 -1
Other........................................................... 18 16 -1
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Total health.................................................... 194 192 -2
Medicare.......................................................... 249 265 16
Income security:
Retirement and disability....................................... 95 95 -*
Unemployment compensation....................................... 40 42 2
Food and nutrition assistance................................... 38 41 3
Other........................................................... 99 103 4
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Total, income security........................................ 273 281 8
Social security................................................... 493 492 -1
Veterans benefits and services:
Income security for veterans.................................... 32 31 -1
Other........................................................... 3 * -2
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Total veterans benefits and services.......................... 34 31 -3
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Total mandatory human resources programs...................... 1,253 1,273 20
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Other functions:
Agriculture....................................................... 15 10 -5
International..................................................... -2 -7 -4
Deposit insurance................................................. -1 -2 -1
Other functions................................................... 13 21 8
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Total, other functions........................................ 24 22 -2
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Undistributed offsetting receipts:
Employer share, employee retirement............................... -52 -53 -1
Rents and royalties on the outer continental shelf................ -4 -5 -1
Other undistributed offsetting receipts........................... -* ............ *
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Total undistributed offsetting receipts....................... -56 -59 -2
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Total, mandatory................................................ 1,221 1,237 15
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Net interest:
Interest on Treasury debt securities (gross)........................ 349 322 -28
Interest received by trust funds.................................... -164 -154 10
Other interest...................................................... -12 -7 4
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Total net interest............................................ 173 160 -13
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Total outlays for mandatory and net interest.................. 1,394 1,397 2
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* $500 million or less.
Table 20-5. RECONCILIATION OF FINAL AMOUNTS FOR 2004
(in millions of dollars)
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Receipts Outlays Deficit
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Totals published by Treasury (September 30 MTS)................. 1,879,799 2,292,352 -412,553
Miscellaneous Treasury adjustments............................ -22 -291 269
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Totals published by Treasury in Combined Statement.............. 1,879,777 2,292,061 -412,284
National Railroad Retirement Investment Trust................. .............. -231 231
Exchange stabilization fund................................... .............. 140 -140
Public Company Accounting Oversight Board..................... 119 68 51
Standard Setting Body......................................... 38 38 ..............
United Mine Workers of America benefit funds.................. 127 127 ..............
Other......................................................... 10 12 -2
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Total adjustments, net........................................ 294 154 140
Totals in the budget............................................ 1,880,071 2,292,215 -412,144
MEMORANDUM:
Total change since year-end statement......................... 272 -137 409
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Deficit
The preceding two sections discussed the differences between the
initial current services estimates and the actual amounts of Federal
Government receipts and outlays for 2004. This section combines these
effects to show the net impact of these differences.
As shown in Table 20-3, the 2004 current services deficit was
initially estimated to be $158 billion. The actual deficit was $412
billion, which was a $254 billion increase from the initial estimate.
Receipts were $151 billion less than the initial estimate and outlays
were $103 billion more. The table shows the distribution of the changes
according to the categories in the preceding two sections.
The net effect of policy changes for receipts and outlays increased
the deficit by $271 billion. Economic conditions that differed from the
initial assumptions in February 2003 accounted for an estimated $22
billion increase in the deficit. Technical factors reduced the deficit
by an estimated $39 billion.
Comparison of the Actual and Estimated Outlays for Mandatory and Related
Programs for 2004
This section compares the original 2004 outlay estimates for mandatory
and related programs under current law in the 2004 Budget (February
2003) with the actual outlays. Major examples of these programs include
Social Security and Medicare benefits for the elderly, agricultural
price support payments to farmers, and deposit insurance for banks and
thrift institutions. This category also includes net interest outlays
and undistributed offsetting receipts.
A number of factors may cause differences between the amounts
estimated in the budget and the actual mandatory outlays. For example,
legislation may change benefit rates or coverage; the actual number of
beneficiaries may differ from the number estimated; or economic
conditions (such as inflation or interest rates) may differ from what
was assumed in making the original estimates.
Table 20-4 shows the differences between the actual outlays for these
programs in 2004 and the amounts originally estimated in the 2004
Budget, based on laws in effect at that time. Actual outlays for
mandatory spending and net interest in 2004 were $1,397 billion, which
was $2 billion more than the initial estimate of $1,394 billion, based
on existing law in February 2003.
Actual outlays for mandatory human resources programs were $1,273
billion, $20 billion more than originally estimated. This increase was
the net effect of legislative action, differences between actual and
assumed economic conditions, differences between the anticipated and
actual number of beneficiaries, and other technical differences. Outlays
for other functions were $2 billion less than originally estimated.
Undistributed offsetting receipts were $2 billion higher than expected.
Outlays for net interest were $160 billion or $13 billion less than
the original estimate. This decrease was the net effect of changes in
interest rates from those initially assumed, changes in borrowing
requirements due to differences in surpluses, and technical factors.
Reconciliation of Differences with Amounts Published by Treasury for
2004
Table 20-5 provides a reconciliation of the receipts, outlays, and
deficit totals published by the Department of the Treasury in the
September 2004 Monthly Treasury Statement and those published in this
budget. The Department of the Treasury made adjustments to the estimates
for the Combined Statement of Receipts, Outlays, and Balances, which
decreased receipts and outlays by $22 million and $291 million,
respectively. Additional adjustments for this budget increased receipts
by $294 million and outlays by $154 million. Several financial
transactions that are not reported to the Department of the Treasury,
including those for the Public Company Accounting Oversight Board, the
receipt of
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accounting oversight fees and their payment to the Standard Setting
Body, and the United Mine Workers of America benefit funds, are included
in the budget. Other significant conceptual differences in reporting are
for the National Railroad Retirement Investment Trust (NRRIT) and the
Exchange Stabilization Fund. Reporting to the Department of the Treasury
for NRRIT is done with a one month lag, so that the fiscal year total
provided in the Treasury Combined Statement covers September 2003
through August 2004. The budget has been adjusted to reflect
transactions that occurred during the actual fiscal year, which begins
in October. For the Exchange Stabilization Fund, reporting for the
budget excludes the gains and losses in the valuation of foreign
currencies held in the fund.
[[Page 365]]
Part II: HISTORICAL COMPARISON OF ACTUAL TO ESTIMATED SURPLUSES OR
DEFICITS
This part of the chapter compares estimated surpluses or deficits to
actual outcomes over the last two decades. The first section compares
the estimate for the budget year of each budget with the subsequent
actual result. The second section extends the comparison to the
estimated surpluses or deficits for each year of the budget window: that
is, for the current year through the fourth year following the budget
year. This part concludes with some observations on the historical
record of estimates of the surplus or deficit versus the subsequent
actual outcomes.
Historical Comparison of Actual to Estimated Results for the Budget Year
Table 20-6 compares the estimated and actual surpluses or deficits
since the deficit estimated for 1982 in the 1982 Budget. The estimated
surpluses or deficits here for each budget include the Administration's
policy proposals. Therefore, the original deficit estimate for 2004
differs from that shown in Table 20-3, which is on a current services
basis. Earlier comparisons of actual and estimated surpluses or deficits
were on a policy basis, so for consistency the figures in Table 20-6 are
on this basis.
Table 20-6. COMPARISON OF ESTIMATED AND ACTUAL SURPLUSES OR DEFICITS SINCE 1982
(In billions of dollars)
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Surplus Differences due to
or deficit ----------------------------------
(-) Actual
Budget estimated Total surplus or
for Enacted Economic Technical difference deficit(-
budget legislation factors factors )
year \1\
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1982...................................... -62 15 -70 -11 -66 -128
1983...................................... -107 -12 -67 -22 -101 -208
1984...................................... -203 -21 38 -0 17 -185
1985...................................... -195 -12 -17 12 -17 -212
1986...................................... -180 -8 -27 -7 -41 -221
1987...................................... -144 2 -16 8 -6 -150
1988...................................... -111 -9 -19 -16 -44 -155
1989...................................... -130 -22 10 -11 -23 -153
1990...................................... -91 -21 -31 -79 -131 -221
1991...................................... -63 21 -85 -143 -206 -269
1992...................................... -281 -36 -21 48 -9 -290
1993...................................... -350 -8 -13 115 95 -255
1994...................................... -264 -8 16 52 61 -203
1995...................................... -165 -18 1 18 1 -164
1996...................................... -197 6 53 30 89 -107
1997...................................... -140 1 -4 121 118 -22
1998...................................... -121 -9 48 151 190 69
1999...................................... 10 -22 56 82 116 126
2000...................................... 117 -42 88 73 119 236
2001...................................... 184 -129 32 41 -56 128
2002...................................... 231 -104 -201 -84 -389 -158
2003...................................... -80 -86 -34 -177 -297 -378
2004...................................... -307 -122 -22 39 -105 -412
Average................................... .......... -28 -12 10 -30 ..........
Absolute average \2\...................... .......... 32 42 58 100 ..........
Standard deviation........................ .......... 42 59 79 137 ..........
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\1\ Surplus or deficit estimate includes the effect of the budget's policy proposals.
\2\ Absolute average is the average without regard to sign.
On average, the estimates for the budget year underestimated actual
deficits (or overestimated actual surpluses) by $30 billion over the 23-
year period. Policy outcomes that differed from the original proposals
increased the deficit by an average of $28 billion. Differences between
economic assumptions and actual economic performance increased the
deficit an average of $12 billion. Differences due to these two factors
were partly offset by technical revisions, which reduced the deficit an
average of $10 billion.
The relatively small average difference between actual and estimated
deficits conceals a wide variation in the differences from budget to
budget. The differences ranged from a $389 billion underestimate of the
deficit to a $190 billion overestimate. The $389 billion underestimate,
in the 2002 Budget, was due largely to receipt shortfalls associated
with the 2001 recession and associated weak stock market performance.
About a quarter of the underestimate was due to increased spending for
recovery from the September 11, 2001 terrorist attacks, homeland
security measures, and the war against terror, along with lower receipts
due to the March 2002 economic stimulus act. The $190 billion
overestimate of the deficit in the 1998 Budget stemmed largely from
stronger-than-expected economic growth and a surge in individual income
tax collections beyond that accounted for by economic factors.
Because the average deficit difference obscures the degree of under-
and overestimation in the historical data, a more appropriate statistic
to measure the magnitude of the differences is the average absolute
difference. This statistic measures the difference without regard to
whether it was an under- or overestimate. Since 1982, the average
absolute difference has been $100 billion.
Another measure of variability is the standard deviation. This
statistic measures the dispersion of the data around the average value.
The standard deviation of the deficit differences since 1982 is $137
billion. Like the average absolute difference, this measure illustrates
the high degree of variation in the difference between estimates and
actual deficits.
The large variability in errors in estimates of the surplus or deficit
for the budget year underscores the inherent uncertainties in estimating
the future path of the Federal budget. Some estimating errors are
unavoidable, because of differences between the President's original
budget proposals and the legislation that Congress actually enacts.
Occasionally such differences are huge, such as additional
appropriations for disaster recovery, homeland security, and war efforts
in response to the terrorist attacks of September 11, 2001, which were
obviously not envisioned in the President's
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budget submitted the previous February. Even aside from differences in
policy outcomes, errors in budget estimates can arise from new economic
developments, unexpected changes in program costs, shifts in taxpayer
behavior, and other factors. The budget impact of changes in economic
assumptions is discussed further in Chapter 12 of this volume,
``Economic Assumptions.''
Five-Year Comparison of Actual to Estimated Surpluses or Deficits
The substantial differences between actual surpluses or deficits and
the budget year estimates made less than two years earlier raises
questions about the degree of variability for estimates of years beyond
the budget year. Table 20-7 shows the summary statistics for the
differences for the current year (CY), budget year (BY), and the four
succeeding years (BY+1 through BY+4). These are the years that are
required to be estimated in the budget by the Budget Enforcement Act of
1990.
Table 20-7. DIFFERENCES BETWEEN ESTIMATED AND ACTUAL SURPLUSES OR DEFICITS FOR FIVE-YEAR BUDGET ESTIMATES SINCE
1982
(In billions of dollars)
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Estimate for budget year plus
Current Budget -------------------------------------------
year year Three Four
estimate estimate One year Two years years years
(BY+1) (BY+2) (BY+3) (BY+4)
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Average difference \1\........................ 16 -30 -65 -86 -95 -99
Average absolute difference \2\............... 51 100 156 201 223 240
Standard deviation............................ 64 137 210 253 258 271
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\1\ A positive figure represents an underestimate of the surplus or an overestimate of the deficit.
\2\ Average absolute difference is the average difference without regard to sign.
On average, the budget estimates since 1982 overstated the deficit in
the current year by $16 billion, but underestimated the deficit in the
budget year by $30 billion. The budget estimates understated the deficit
in the years following, by amounts growing from $65 billion for BY+1 to
$99 billion for BY+4. While these results suggest a tendency to
underestimate defi
[[Page 367]]
cits toward the end of the budget horizon, the averages are not
statistically different from zero in light of the high variation in the
data.
The average absolute difference between estimated and actual deficits
grows dramatically over the six years from CY through BY+4, from $51
billion in the current year to $100 billion for the budget year, to $240
billion for BY+4. While under- and overestimates of the deficit have
historically tended to average out, the absolute size of the under- or
overestimates grows as the estimates extend further into the future. The
standard deviation of the deficit differences shows the same pattern.
The standard deviation grows from $64 billion for current year estimates
to $137 billion for the budget year estimates and continues to increase
steadily as the estimates extend further out, reaching $271 billion for
BY+4.
The estimates of variability in the difference between estimated and
actual deficits can be used to construct a range of uncertainty around a
given set of estimates. Statistically, if these differences are normally
distributed, the actual deficit will be within a range of two standard
deviations above or below the estimate about 90 percent of the time.
Chart 20-1 shows this range of uncertainty applied to the deficit
estimates in this budget. This chart illustrates that unforeseen
economic developments, policy outcomes, or other factors could give rise
to large swings in the deficit estimates.